San Francisco Pension Votes to Engage With Fossil Fuel Companies Over Climate Change; Next Step Could Be Divestment

Golden Gate Bridge

The Board of the San Francisco Employees’ Retirement System (SFERS) voted Wednesday to begin engaging with the fossil fuel companies in which it invests.

The vote opens the door for an eventual vote on divesting from fossil-fuel companies altogether – an idea that is sure to receive mixed reviews from board members and city officials.

The pension fund currently holds about $540 million in fossil fuel companies, which accounts for less tan 4 percent of the fund’s entire portfolio, according to SF Gate.

More details from SF Gate:

The board voted Wednesday to go to “level-two engagement,” meaning it will actively attempt to influence the policies of the companies in which it invests. The next step would be to move forward with divesting from the companies.

“If you want to divest, you have to start somewhere,” commission President Victor Makras said. “Our mere size and name brings something to the engagement process.”

[…]

“There is some urgency,” Supervisor John Avalos, who has led the charge, told the board. “We have to take into consideration the real (climate) changes that are happening overnight.”

The counterargument is that stocks of fossil fuel companies are a component of most major index funds, and divesting from them could limit pension-fund revenues that pay for the retirement benefits of thousands of city workers.

“I don’t think I’m in a position to do that,” said Commissioner Brian Stansbury, the only one of seven board members to vote against moving to level two. Stansbury, a San Francisco police officer, expressed concern that moving the money out of fossil fuel assets would be “financially risky.”

The San Francisco Employees Retirement System manages $20 billion in assets.

 

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CalPERS, CalSTRS to Step Up Climate Change Engagement Efforts

smoke stack

CalPERS and CalSTRS have issued a joint statement recounting their track records on engaging corporations on the topic of climate change. The statement also outlines future initiatives aimed at stepping up their corporate engagement on the sustainability front.

From the statement:

We recognize climate change as a material risk to society, the economy, and the impacts on our investment decisions. We have been at the forefront of tackling climate change issues through policy advocacy, engagement with portfolio companies and investing in climate change solutions.

CalSTRS and CalPERS both have well-established, thorough vetting processes for potential investments, which seek to test not only for financial potential, but for social, human and environmental impacts, as well.

CalSTRS developed an investment policy for mitigating environmental, social and governance risks under its CalSTRS 21 Risk Factors, adopted in 2008.

* Included in the 21 factors are points specific to environmental concerns such as air quality, water quality, climate change, and land protection.

* This policy guides the Teachers’ Retirement Board’s investment decisions.

* CalSTRS internal ‘Green Team,’ made up of representatives across all investment groups, further identifies ways to avoid or mitigate risks to the investment portfolio posed by environmental, social and governance factors.

CalPERS adopted Investment Beliefs addressing Climate Change issues:

* CalPERS believes long-term value creation requires effective management of three forms of capital: financial, physical and human.

* Investors must consider risk factors, for example climate change and natural resource availability that could have a material impact on portfolio returns

Read the full statement here.

The statement comes as the California legislature considers a measure that would force the pension funds to divest from all coal holdings. The funds have come out against the proposal.

 

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Study: Pensions Put Pressure on Private Equity to Formulate Environmental, Social Investment Policies

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Research from the London Business School shows that the vast majority of large private equity firms – 85 percent – are feeling increased pressure from Europe’s institutional investors to incorporate environmental, social and governance (ESG) considerations into their investment policies and processes.

Details from Investments & Pensions Europe:

The study was based on responses from 42 private equity firms with collective assets under management of more than $640bn.

“Issues such as climate change, sustainability, consumer protection, social responsibility and employee engagement are no longer viewed solely as components of risk management, but have also gained recognition in recent years as important drivers of firm value, particularly in the long term,” the study said.

[…]

But even though ESG policies were being adopted more and more, there were still some big obstacles to these being implemented, the study showed.

The most notable barrier was the difficulty in collecting the necessary data, it said.

Also, some respondents cited the attitude of internal managers as a barrier to implementation.

“It appears that, while ESG integration has become common, there remain pockets of internal managerial resistance to the whole idea of considering such issues as relevant for investment decisions,” the study said.

[…]

Ioannis Ioannou, assistant professor of strategy and entrepreneurship at the London Business School, said: “The private equity industry is increasingly placing greater importance to ESG, moving it from a purely compliance and risk mitigating strategy to a key long-term strategy through which private equity firms pursue value creation.”

Read the research report here.

 

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CalPERS Board to Study Impact of Income Inequality on Pension Funds

Calpers

CalPERS’ Board of Administration will discuss the impact of income inequality on institutional investors at their next meeting, according to slides made available on the pension fund’s website.

The Board of Administration’s investment committee will discuss the issue next week.

More from the National Law Review:

The slide presentation prepared for next week’s meeting identify the following three priorities:

* Proxy Access

* Climate Change

* Exploration of Income Inequality

According to the slides, “exploration” consists of the CalPERS staff reading up on income inequality (or as expressed in slides, a “comprehensive review of research and analysis related to income inequality and its impact, if any, on institutional investors”). Apparently, the staff has already started reading because the slides include this quotation from Thomas Picketty’s book, Capital in the Twenty-First Century:

“When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”

View the slides here.

 

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California Bill Would Force CalPERS, CalSTRS To Divest From Coal

smoke stack

California Senate President Kevin de Leon has introduced a bill that would force the state’s pension funds to exit all coal investments.

Additionally, CalSTRS and CalPERS would be prohibited from making new coal investments until 18 months after the bill becomes law.

De Leon hinted in November that he would introduce such a bill, and the pension funds had already responded negatively to the proposal.

More from the Guardian:

The California senate leader, Kevin de Leon, said he was introducing a bill on Tuesday calling on the two state funds – CalPERS, the public employees’ pension fund, and CalSTRS, the teachers’ pension funds, drop all coal holdings.

The bill is part of a larger package of climate measures – endorsed by Governor Jerry Brown – aimed at gearing up California’s efforts to fight climate change.

The former US vice-president and climate champion Al Gore spoke to the CalSTRS board in Sacramento last Friday. Gore has long argued that fossil fuels are a risky proposition as a long-term investment.

“Our state’s largest pension funds also need to keep their eyes on the future,” De Leon, a Democrat, said in an email. “With coal power in retreat, and the value of coal dropping, we should be moving our massive state portfolios to lower carbon investments and focus on the growing clean-energy economy.”

The two state funds are the biggest targets so far of a divestment movement that has moved from college campuses towards mainstream financial conversation.

[…]

De Leon’s proposal calls on managers of both state funds to withdraw from all coal companies, and make no new investments in coal within 18 months after the bill becomes law.

It further calls on the two funds to explore the feasibility of expanding its divestment, by divesting entirely from fossil fuels – including natural gas – and report back to the state legislature by 2017.

CalSTRS and CalPERS have a combined $299 million invested in coal assets, according to de Leon’s office.

 

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CalPERS CEO: “The Companies We Invest In Have to Be Sustainable”

Calpers

CalPERS CEO Anne Stausboll sat down with the Financial Times for an extensive interview last week.

She talked about her push to make CalPERS an agent of change on social and environmental issues, including the use of shareholder power to engage with companies about sustainable business practices.

Here’s that excerpt, from the Financial Times:

Where Ms Stausboll is most passionate about the power of Calpers to make a difference is in the social and environmental sphere. A vegetarian on moral grounds since her university days, she began her career as a lawyer fighting for equal pay for female workers. On her way to the top she has moved back and forth between Calpers and Californian government, working as deputy to the state treasurer, Phil Angelides, at the turn of the century, when he was pushing for US public pension funds to use their power as shareholders to encourage greener business practices.

Today, Calpers is urging corporations to assess the risks that climate change pose to their businesses; it will be putting motions to shareholder meetings demanding as much. The idea is these shareholder resolutions will be a not-so-subtle nudge to executives to push for more environmentally friendly practices, not just at oil and gas companies but in the insurance sector, in agriculture and across corporate America.

“Our portfolio has to be sustainable for decades and generations, and . . . to make the portfolio sustainable, the companies we invest in have to be sustainable,” she says.

The interview also covers CalPERS’ push for corporate board diversity, the fund’s corruption scandal and its quest to reduce investment expenses.

Read the full interview here.

 

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Institutional Investors Push Oil Giants to Disclose Climate Change Risks

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A coalition of 150 investors – including pension funds from around the world – are calling on oil giants BP and Shell to provide greater transparency regarding the risks that climate change poses to their business models.

More from Chief Investment Officer:

The coalition, which includes pension funds from the UK, US, and Northern Europe, has submitted a resolution to BP outlining the articles they expect it to reveal. These resolutions can be voted upon by all shareholders in the companies. A similar resolution was submitted to Shell last month.

The resolutions include: Stress-testing their business models against the requirement to limit global warming to 2ºC, as agreed by governments at the UN Climate Change Conference in 2010; Reforming their bonus systems so they no longer reward climate-harming activities; Committing to reduce emissions and invest in renewable energy; Disclosing how their public policy plans align with climate change mitigation and risk.

Catherine Howarth, the CEO of ShareAction that helped to coordinate the demands, welcomed the support from the investors. Some 13 UK public sector pensions committed to the project, with three of the Swedish AP funds joining the campaign.

“Millions of pension savers worldwide will want their pension funds to vote in support, demonstrating true commitment to protecting their members from the risks of climate change,” said Howarth. “These resolutions put the global investment community to the test on climate change.”

The move comes as large international investors are considering the risk climate change poses to their portfolio.

Read more coverage on pension funds’ engagement with fossil fuel companies here.

 

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Shareholder Engagement Produces Few Results, Says Activist Investor

windmill farm

Shelley Alpern, Director of Social Research & Advocacy at Clean Yield Asset Management, penned a piece on Monday weighing in on fossil fuel advocacy among institutional investors.

Most institutional investors have declined calls to divest from fossil fuel assets, citing their fiduciary duties as a major reason.

Instead, many have opted to use their clout as major shareholders to actively engage with companies.

But Alpern is skeptical of this tactic.

Alpern writes:

Institutional investors and asset owners owe it to themselves to understand when engagement works and when it doesn’t.

On the whole, shareholder engagement has an admirable track record. Its practitioners can take credit for many achievements: increased disclosure of corporate political spending; reduced waste, pollution and water usage; greening supply chains; broad adoption of inclusive nondiscrimination policies; and greater diversity on corporate boards. Not to mention the anti-apartheid campaigns of the 1980s.

Engagement succeeds when we can make a persuasive case that change will enhance shareholder value, reduce business or reputation risk, or both. Ethical imperatives rarely carry the day on their own.

Engagement will fail when a company with flawed policies or practices perceives them to be unalterable. As engagement with tobacco companies demonstrated, it also will not work when the goal is to change the core business model of a company.

She then looks at the track record of shareholder engagement with fossil fuel companies:

It’s been 23 years since the first climate change proposal was filed at a fossil fuel company. Using conservative estimates based on records kept by the Interfaith Center on Corporate Responsibility, at least 150 such proposals have been filed at fossil fuel companies since, and at least 650 climate proposals and dialogues on climate change have taken place at non-fossil fuel companies.

Space limitations preclude a detailed inquiry into these engagements, so let’s take a snapshot look at the most recent efforts and where things stand as of right now.

In late 2013, 77 institutional investors with more than $3 trillion in assets called on 45 companies to assess the potential for operational assets to lose value if carbon regulations become stricter and if competition from renewables takes market share.

Most coal and electric power companies didn’t provide the written responses requested. Most oil and gas companies did respond, but none acknowledged the existential threat to their activities or the need to scale them back. As former SEC Commissioner Bevis Longstreth observed, ExxonMobil not only denied that any of its reserves could become stranded, but also stated that it is “confident that future reserves, which it intends to discover and develop in quantities at least equal to current proved reserves, will also be unrestricted by government action.” With this report, Longstreth concluded, “ExxonMobil has thrown down the gauntlet after slapping it hard across the collective face of humanity.”

Two successive waves of “carbon asset risk” shareholder proposals followed this initiative, but have done nothing to budge the denialist positions held by their targets.

Read the entire piece here.

 

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Sustainable Investing Experts Weigh In On Fossil Fuel Divestment; Is Engagement A Better Strategy?

fossil fuels

Different pension funds have different opinions on how climate change should affect investment strategy.

Some, like Norway’s largest pension, are willing to divest from certain fossil fuels entirely.

Others, like CalPERS, prefer to use their leverage as major shareholders to engage with companies rather than divest. Many others cite their fiduciary duties to pensioners as a reason they can’t divest from fossil fuels.

What do sustainable investing experts have to say? The Financial Times talked to them:

“The idea that shaming an industry will somehow reduce greenhouse gas emissions is not correct,” says Jonathan Naimon, managing director of Light Green Advisors, a New York asset management firm that specialises in environmental sustainability investing. “It isn’t like divestors are bringing any solutions to the table.”

“It’s actually projects and technologies that reduce emissions and the people developing them are in energy supply companies as well as energy-using companies,” he adds.

[…]

But Bill McKibben, the US environmental activist and writer who co-founded the 350.org climate campaign group spearheading the divestment push, says engagement strategies only suited some companies.

“If we have a problem with Apple paying Chinese workers bad wages you don’t need to throw away your iPhone and boycott Apple stock. You need to put pressure on them so they pay people better and the price of an iPhone goes up a dollar and everyone’s happy,” he says.

But he argues fossil fuel extraction companies are a very different case because their value is so dependent on their reserves of oil, gas and coal. “There’s no way that engagement can persuade them to get out of this business as long as it remains a profitable business,” he says

“The idea that anyone else is going to merrily persuade Chevron or BP that they want to be in the renewables business or something is nuts,” he says. He argues this would only happen with government pressure and that in turn would require the dilution of energy companies’ political power by efforts such as the divestment movement.

[…]

Carbon Tracker itself does not recommend a pure divestment strategy.

“We’re not advocating blanket divestment,” said Anthony Hobley, the group’s chief executive. “We think both engagement and divestment together will achieve more. The sum is greater than the parts because either alone isn’t going to achieve the ultimate objective of a climate-secure energy system.”

What does an oil executive think about fossil fuel divestment? Click here to read his take.

 

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California Senator Formulating Bill to Force CalSTRS, CalPERS to Divest From Coal

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California Senate President Kevin de León said Monday he may introduce a bill in 2015 that would require the state’s pension systems – CalPERS and CalSTRS, two of the largest systems in the world – to divest from coal-related investments.

The bill wouldn’t cover oil or gas investments.

The legislation seems to be in its earliest stages.

The move would be a controversial one not just for the fiduciary complications involved. The Center for Retirement Research has done work on the subject of social investing (and divesting) and found that outcomes may not favor pension funds.

More from SF Gate:

The state Senate’s top leader said at an Oakland forum organized by billionaire environmental activist Tom Steyer that he’s planning to introduce a measure next year to require the state’s public-employee pension funds to sell their coal-related investments.

“Climate change is the top priority of the California state Senate,” said Senate President Pro Tem Kevin de León, D-Los Angeles. He said his legislation would require that the California Public Employees Retirement System, which manages public employees’ pensions and health benefits, and the California State Teachers Retirement System divest millions of dollars in coal-related investments.

“Coal is a dirty fossil fuel, and we generate very little electricity in California from coal,” de León said. “And I think our values should shift in California.”

De León, who just returned from an international climate-change summit in Peru, said he hadn’t worked out the specifics of his bill but that it would be limited to coal investments. He said it would not extend to all fossil-fuel holdings such as those in oil and gas production.

“We’re working out all the (divestment) details,” he said. “We’re talking about a way that’s smart and intelligent, not a way that hurts investment strategies.”

Climate-change activists have been pushing large investors to shed their holdings in coal, a major contributor to greenhouse gases. CalPERS, the nation’s largest public pension fund with $300 billion in investments, would be the environmental movement’s biggest prize should de León be able to push his legislation into law.

CalPERS manages $295 billion in assets. CalSTRS manages $187 billion in assets.

 

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